Report reveals state of 2015 Australian legal market
Joel Barolsky, Senior Fellow of the Melbourne Law School, was the lead author of a new report into the Australian commercial legal market. The report was the product of a collaboration between Thomson Reuters Peer Monitor, the Melbourne Law School and Barolsky Advisors. Melbourne JD student, Christopher Langton, provided research assistance. Mr Barolsky discusses the key findings below.
In summary, the report revealed that the Australian legal market has all the hallmarks of a mature industry: declining demand, increased price-based competition, worktype decomposition, entry of market disruptors, technology substitution, and growth in both consolidators and niche players. While market conditions are tough, they're not calamitous. The larger firms generally have shrinking profit pools but have kept their heavy-hitters happy by de-equisiting other partners and cutting headcount.
It appears that the biggest structural change in the market has not been NewLaw entrants or even globalisation, it has been the dramatic shift of work in-house and an increase in buyer power and sophistication. This trend has been prevalent in Australia for over a decade but its impact is really being felt in a benign economy and a demoralised political environment.
Demand for commercial legal services has been on a relatively steady downward trajectory for the past five years, and 2015 failed to break this trend, with demand again falling 2.0%. Notably, Q4 2015 saw a slight increase in demand, the first quarter in almost three years of declining demand. The overall decline in demand is primarily attributable to the decline in demand for the industry's three biggest practice groups: dispute resolution, banking & finance and corporate general. These three practices represent 48% of all legal services provided.
Firms with strong property and construction and M&A practices enjoyed a prosperous F15, while those with big banking and finance practices recorded a significant decline in demand. Domestic firms enjoyed relatively higher growth than global firms in litigation, IP and general corporate, while the globals made headway in property and M&A.
While the long-term trend is negative, the first half of 2015 saw many firms rehiring lawyers for the first time in a number years. Over the 3-year period ending June 2015, the number of FTE lawyers employed at the Big 8 law firms declined by 12.0%.It appears that technology is the biggest investment area of the larger firms. In other sectors of the economy facing maturity, marketing and BD expenditure tends to increase relative to other areas. The signs are that law firms are banking on technology to make step-change improvements in efficiency and effectiveness.